John G. Stumpf, the long-time chief executive of Wells Fargo, defended the mega bank in an interview Tuesday, saying the institution is working to stamp out bad behavior after revelations that thousands of employees secretly created accounts customers didn’t ask for in order to meet sales goals.
Stumpf said Wells Fargo has already taken several steps to strengthening its compliance programs in the wake of the scandal, which resulted in $185 million in fines last week. The bank also dismissed 5,300 employees, including some managers, who were accused of creating sham accounts.
“On average 1 percent [of employees] have not done the right thing and we terminated them. I don’t want them here if they don’t represent the culture of the company,” Stumpf said.
“We’re not sitting idly by,” he said, “we are investing in controls and training. . .We’re making big investments and my goal is perfection.”
Stumpf began speaking out publicly for the first time since the controversy thrust the San Francisco-based bank into the spotlight. Wells Fargo has long cultivated a reputation for staying out of the regulatory headaches that have dogged some of its biggest competitors. That reputation is now at risk as lawmakers, regulators and even Wall Street analysts question how one of the country’s largest banks could have allowed such behavior to fester for years.
“This ought to be a moment where people stop and remember how dangerous the system is when you don’t have the proper protections in place,” Treasury Secretary Jack Lew said at a conference Tuesday, according to CNBC. “This is a wake-up call and should remind all of us that culture and compensation make a difference. How you reward people, how you motivate people and what values you hold people to matters.”
According to regulators, thousands of Wells Fargo employees created up to 2 million accounts, for services such as credit cards, that customers may not have authorized. In some cases, the employees took money from an established account to create a new one. Customers were then sometimes hit with assorted fees for accounts they didn’t know they had, the regulators charged.
The bank doesn’t “want a dime that we have not earned, we have returned it and we apologized,” Stumpf said.
The activity peaked in 2013 and mostly occurred in the Southwest part of the country, John Shrewsberry, the company’s chief financial officer, said at a conference Tuesday. “It’s tailed off since then,” he said.
The employees were attempting to reach aggressive sales goals -- and earn bonuses, regulators said. Wells Fargo said Tuesday that it would eliminate those sales goals by the end of the year.
“The risk is not worth it, it is not critical to the growth of the company,” Stumpf said.
The sales goals were part of Wells Fargo’s aggressive push into “cross selling,” persuading customers to sign up for multiple products. A customer with a checking account, for example, would be encouraged to consider a credit card or savings account. The industry has been under pressure amid historically low interest rates and tighter banking-industry regulations after the 2008 financial crisis, and “cross selling” can be a profit driver.
On Friday, the day after the settlement was announced, the bank told call center employees to forgo their usual cross-selling and to focus on answering as many calls as possible, in anticipation of customer concerns. The pause in offering additional products is temporary, a company representative said.
“The trust our customers have that we will put them first [is paramount],” Stumpf said. “We are doubling down on that. ... Today is another move along that continuum.”
The Senate Banking Committee has scheduled a hearing for next week and Stumpf is expected to testify. Before the hearing, Wells Fargo officials said they would hold briefings about the incident on Capitol Hill.
Stumpf, who made $19 million last year, did not respond to questions about when he learned about the sham accounts. He said the board of directors would have to decide whether any executives should have to give back their bonuses. Wells Fargo board members include such notables as former U.S. secretary of labor Elaine L. Chao, former Fed governor Elizabeth A. Duke, James H. Quigley, CEO emeritus of Deloitte, and Stephen W. Sanger, retired chairman of General Mills.
“You want to get perfection, when we’re not perfect, I feel accountable,” Stumpf said.
There remain many unanswered questions about what led employees to create the unauthorized accounts and how extensive the problem was, said Erik M. Oja, an equity analyst at S&P Global Market Intelligence.
“I find this exceedingly disappointing for a company that has a gold standard reputation,” Oja said.
“What bothers me is how widespread this was. . .Unless the CEO resigns they are not really taking responsibility.